The Rhythm of The Software Industry Impacts Business Buyers

Above Photo: Like analyzing the rings on a tree stump, our natural environment gives us clues on where we’ve been, and where we’re going.

Have you ever noticed a set of patterns in the industry that come in sequence? A series of startups getting funded, or acquired in rapid sequence? Or perhaps, a series of software suites that offer you the chance to be a lighthouse early adopter client with all the bells and whistles at a low cost? For the astute, you may be noticing a natural pattern that our industry goes through, every year. Just as our bodies, the planet, and weather go through natural rhythms and cycles, technology markets also have their own set of cadence and flows. While the below patterns aren’t universal, I’ve observed over the years the software space has it’s own natural rhythm, and I’d like to share my industry observations.

Winter VC vacations influences market moves. Strangely, much of this stems from when VCs go on vacation. I’ve been spending more time on Sand Hill road, to understanding how their funding impacts the market years out. VCs have competency in guiding a company, influencing direction, and brokering a sale. The second half of Dec is often the quiet period from Sand Hill as many a VC takes an extended vacation. During this time, deal flow comes to a crawl, and people spend time with their families. It’s very difficult for a startup to quickly sell if their investors and board of directors are away. Brands also prepare their budgets in winter, and ready for purchasing or renewing contracts, causing an influx of resources in software startups.

Spring spurs funding and acquisition talks. In the second and third month of the year, we start to see some checks being written, and I saw two B rounds funded in my own space, and a handful of others. Often, the corp dev leads start the acquisition hunt in spring, and I witness many a CEO and CTO touring up and down highway 101 where the large blue chip software companies are located, in hopes of striking up partnerships or posturing for a sale. Teams from both sides often end up at local events, or even at meetings in my office, so I can see this particular cycle, first-hand. Buyers of technology are in roll-out mode of their annual plans, and aligning software to their business goals including campaigns, new product launches, or system integration.

Summertime focuses on lighthouse customers. A lighthouse customers is an early adopter of a technology that a tech vendor will want to feature in marketing efforts, conferences, and as a customer reference during sales cycles. While last year had a rash of M&A in 2012, we should expect more acquisitions to occur around summer, so the large blue chip software companies can complete their suites, and onboard lighthouse customers. For companies that made mass acquisitions last year, they’re often tearing down the software and rebuilding it in the native software stack, they also onboard lighthouse customers. This is an opportunity for passion brands to cut deals with software vendors at lower cost, but expect to be amplified and used as a customer testimonial in Fall.

Fall vendor conference season fosters solution selling. Solution selling is the practice of combining multiple pieces of software, services, and strategy to offer increased value-add to buyers. These solution messages are the primary banner being waved as the large software vendors initiate their conferences. Often these conferences feature the newly on boarded lighthouse customers and made their acquisitions they prepare for the culmination event which is to tell a solution-based story on stage at their own conferences. The lighthouse customers from the prior bullet can use this as an opportunity for low-cost marketing as the vendors want them to tell their story, or will reference the good work the customers have completed. Expect this above cycle to continue to repeat.

Buyers of Technology Must Watch Market Nuances.
So there you have it, VC vacation schedule can actually influence how brands are featured on stage at a large conference in the fall. Buyers of technology must understand the rhythm of the space as it will impact the level of service they will receive and pricing of software and services. It’s important that buyers also know the relationship of the investors of a vendor they choose as they help to indicate a pattern of a company seeking to go it alone to IPO, or a player seeking to be purchased by a larger player, forcing the brand to consider a suite of services that may not be compatible with their existing stack. System integrators and digital agency shops must also follow these dance moves, as it will cause rifts in technology integration, which yield both pain, but business opportunities to integrate for brands at a cost. Brands seeking low-cost marketing by leveraging a vendor to tell their story should cozy up to software suites right after an acquisition, in hopes of being featured on the main stage of the software vendor’s fall conference and webinar series throughout the year.

What patterns and cycles do you see in business that have greater ramifications to business? Leave a comment below, let’s have a dialog.